SEC calls Coinbase’s demand for new crypto-regulatory rules unreasonable

What’s new? The US Securities and Exchange Commission (SEC) has challenged the demand of the crypto exchange Coinbase on the creation of a completely new cryptocurrency regulatory system. Coinbase filed the corresponding motion within the framework of the court proceedings on the SEC’s claim for violation of securities laws.

Material by The Block

What else is known? Coinbase back in July 2022 sent a petition to the SEC with a request to clarify the rules of operation for crypto companies. Almost a year later, without waiting for a response, it demanded it through the court.

In May 2023, officials said the SEC was not obligated to honor Coinbase’s requests and also warned of an impending rulemaking on crypto regulation. At the time, Coinbase Chief Legal Officer Paul Grewal explained that it could take several years for the regulator to provide regulatory clarity to the industry.

In June, the SEC, without responding to the petition, sued Coinbase for offering unregistered securities, which are allegedly SOL, ADA, MATIC, and other tokens, and for operating without registering as a broker, exchange, or clearing agency. Officials later said they had not made a decision on whether they would even consider Coinbase’s petition.

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In August, Coinbase said it intended to seek a full dismissal of the SEC’s case, and launched the Stand with Crypto Alliance, an advocacy organization to engage the crypto community in industry regulation laws.

In November, Coinbase CEO Brian Armstrong spoke about 30 fruitless meetings with SEC officials that were held at the exchange’s initiative over the course of 18 months to find out how the commission determines whether a particular token falls under the securities category. He noted that Coinbase was never able to get a clear answer from officials about the method of categorization. Instead, the SEC sued the exchange, citing 13 tokens traded on the exchange in the lawsuit that are allegedly unregistered securities.

In a new filing dated May of this year, the SEC told the court that Coinbase’s motion to compel the commission to develop new rules for the industry should be denied. Officials emphasized that Coinbase’s request is unreasonable and that the current approach to regulating digital assets is not unworkable, as the exchange claims.

Coinbase argued in its motion that courts have difficulty applying existing law to digital asset cases. The SEC insists it is taking proactive steps to clarify a number of issues regarding the application of existing law to cryptocurrencies, which fall under the definition of securities.

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The SEC emphasizes that the exchange’s petition is not enough to trigger the rulemaking process, it requires a corresponding decision by Congress or can be initiated when there is a threat to the safety of citizens.